US dollar weakens on soft construction spending data

One step forward, two steps back. That idiom clearly explains the situation of the US dollar against the Japanese Yen for many months as of now. The statement made by the Fed Chair Janet Yellen regarding a rate hike took the USDJPY pair from 105.54 to 111.44 last month. However, the US dollar has once again lost momentum against the Yen. It now seems that the USDJPY would reach a range of 101 to 103 for the reasons explained below.

The Institute for Supply Management’s (ISM) preliminary data indicated that the manufacturing activity expanded more than the expectation of analysts. The reading came in at 51.3, above the April’s reading of 50.8 and against the Street estimates of 50.4.

However, the construction spending data showed a decline of 1.8% in April. It is the steepest decline in the past five years. The analysts were expecting a 0.5% rise in construction spending for April.

Another survey showed that the manufacturing activity contracted in China for the fifteenth month in a row. The situation in Europe is no way different. The final manufacturing PMI of Germany was 52.1. The reading came below the consensus estimates of 52.5.

The mixed data now raise concern about the prospects of a rate hike in June. In Japan, the Prime Minister Shinzo Abe postponed the plan to increase the sales tax by two and a half years. Thus, fundamentally, the USDJPY pair can be expected to remain in a downtrend for the weeks to come.

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The long-term chart indicates that the stochastic has fallen below the reading of 50 for the first time in several years. This indicates that the USDJPY is in a long-term downtrend. The monthly chart indicates a resistance at 111.50. The currency pair continues to move within the declining channel. The next major support exists at 101.50 levels.

Thus, a currency trader can consider taking a short position, near 109.50, with stop loss at 112. The Forex trader can exit from the short position, when the currency pair enters the support zone between 101.50 and 103. The trade carries a risk to reward ratio of 1:3.

A binary trader can pick a one touch call option in the USDJPY currency pair. Even a ladder put option can be bought as we expect a steep decline in the USDJPY pair.

Invariably, all the well-known binary brokers offer USDJPY pair. So, a trader will never run out of options while choosing the strike price and the expiry date. The recommended put option strike price is 105. Likewise, an expiry date in the final week of June would favor the trader.

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